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Monday, September 15, 2014

Hedge Funds Lower Crop Bets to Lowest Since January

Hedge funds cut bullish wagers on agricultural commodities to the lowest since January before the U.S. forecast rising grain supplies and sent wheat, corn and soybean prices to four-year lows.

Money managers lowered their net-long position on crops from coffee to wheat in 10 of the past 11 weeks, U.S. government data show. Investors got more bearish on sugar and have the most-negative outlook on soybeans since 2006.

American farmers will collect the biggest corn and soybean crops ever this season, while global wheat reserves are set to reach a three-year high, the U.S. Department of Agriculture said Sept. 11. Three months of rain and mild weather created almost ideal growing conditions, spurring price declines that drove the Bloomberg Commodity Index to a five-year low last week.

"The weather’s been very conducive for a very strong crop," Kelly Wiesbrock, a portfolio manager at Harvest Capital Strategies in San Francisco, which oversees $1.8 billion, said in a telephone interview Sept. 10. "We’ve completely rebuilt inventory levels from a couple years ago. They’re no longer tight, and you’ve seen corresponding prices drop a lot."

The Bloomberg Commodity Index fell 2.8 percent last week, the most in two months. Corn futures in Chicago tumbled 4.9 percent, the most since July 11, to $3.385 a bushel on the Chicago Board of Trade. The MSCI All-Country World Index of equities slid 1.4 percent. The Bloomberg Dollar Spot Index rose 1.2 percent.

Global corn stockpiles are projected to reach a 15-year high before the 2015 harvest, with production climbing in the U.S., Europe and Brazil. Soybean output will rise to the highest ever, at 311.13 million metric tons.

World food prices retreated in August to the lowest in almost four years, the United Nation’s Rome-based Food & Agriculture Organization said Sept. 11. The index for cereals declined for a fourth straight month, dropping 13 percent since April.

Low prices may not last if buyers expand purchases of cheap supplies. Traders will shift their focus to robust demand "in coming months," with corn futures "trending back towards $4," Christoper Narayanan, the head of agricultural research at Societe Generale, said in a Sept. 12 report. Global consumption will rise 2 percent this season to 970.69 million tons, the USDA predicts.

Yield Risk

Freezing temperatures and excessive rain can still threaten to reduce corn and soybean yields before harvesting begins at the end of this month in most of the northern half of the Midwest. The U.S. is the world’s biggest grower of corn and soybeans and the top exporter of wheat.

"If you were to get a sharp U-turn in prospects for the really nice weather we’ve been having, some kind of frost or winter-type blast, that would" help support prices, Sameer Samana, a senior international strategist who helps manage $1.4 trillion at Wells Fargo Advisors LLC in St. Louis, said in a telephone interview Sept. 11. "It would be a short-lived rally."

The net-short position in soybeans reached 39,786 futures and options last week, the CFTC data show. That compares with 25,574 a week earlier and is the biggest bearish holding since October 2006.

Crude Wagers

Net-wagers across 18 U.S. traded commodities tumbled 8.4 percent to 511,424 contracts, the lowest since November, the government said.

Bullish bets on crude oil climbed 8.3 percent to 186,612 contracts. West Texas Intermediate last week slid 1.1 percent to $92.27 a barrel in New York and traded at $91.57 today. Speculators turned bearish on copper, with a net-short position of 2,077 contracts, compared with net-long a week earlier of 6,657 contracts.

Investors reduced bullish bets on gold for a fourth straight week to 71,376 contracts, the lowest since June. Futures in New York are heading for the first quarterly loss this year.

Even as the U.S. expanded sanctions against Russia and ramped up its military campaign to combat Islamic State in Iraq, investor interest in bullion has been muted as the U.S. economy recovered. Improved prospects for faster growth have boosted speculation that the Federal Reserve will signal a move toward raising interest rates at its meeting this week.

"Gold’s been a tough investment on the long side for a considerable period of time," Jim Russell, who helps oversee $120 billion as a senior equity strategist at U.S. Bank Wealth Management in Cincinnati, said in a telephone interview Sept. 11. "We’ve had a lot of negative world news, and gold has not rallied in the face of that. And I don’t know of any more terrifying headlines to produce than are being produced now."